Differential Equations

First Order Equations

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Advertising Awareness

Differential equations are widely used to describe a variety of dynamic processes in Economic Sciences, Business and Marketing. Below we consider how an advertising campaign can be simulated using differential equations.

Imagine that a company has developed a new product or service. The marketing strategy of the company involves aggressive advertising. To construct the simple model we introduce two variables:

Thus, we will consider the market niche as a black box (Figure \(1\)). The advertising activity \(q\left( t \right)\) is the input variable, and awareness of consumers \(A\left( t \right)\) is the output variable that measures response of the system to the advertising campaign.

The market niche as a black box
Figure 1.

A simple model of such type was proposed in \(1962\) and is called the advertising model of Nerlove and Arrow (the N-A model). This model relates advertising activity \(q\left( t \right)\) and awareness of consumers \(A\left( t \right)\) and is given by the differential equation:

\[\frac{{dA}}{{dt}} = bq\left( t \right) - kA,\]

where \(b\) is a constant describing advertising effectiveness, \(k\) is a constant corresponding to decay (or forgetting) rate.

The given equation contains two terms in the right side. The first term \(bq\left( t \right)\) provides the linear growth of awareness of consumers as a result of advertising. The second term \(-kA\) reflects the opposite process, i.e. forgetting about the product. In the first approximation, we can assume that the forgetting rate is proportional to the current level of awareness \(A.\)

This equation is a Linear Differential Equation of First Order. It's convenient to rewrite it in the standard form:

\[\frac{{dA}}{{dt}} + kA = bq\left( t \right).\]

The integrating factor is the exponential function:

\[u\left( t \right) = {e^{\int {kdt} }} = {e^{kt}}.\]

Therefore the general solution of the given differential equation is given by

\[A\left( t \right) = \frac{{b\int {{e^{kt}}q\left( t \right)dt} + C}}{{{e^{kt}}}}.\]

As usual, the constant of integration \(C\) can be found from the initial condition \(A\left( {{t_0}} \right) = {A_0}.\)

In the examples below we consider how awareness of customers \(A\left( t \right)\) varies for different advertising modes.

See solved problems on Page 2.

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